Before continuing with the armaments story take a quick scroll through FT Alphaville's coverage of what they call the "pari passu saga".

Go ahead, I can wait, and seeing the headlines flash by is almost hypnotic, which may be important to getting buy-in for my conclusions.

From Jane's Defence 360:

UK reviews Falklands defence as Russia offers Su-24s to Argentina

The Ministry of Defence (MoD) is to conduct a review of its plans for
the defence of the Falkland Islands following reports that Russia is to
supply Argentina with Sukhoi Su-24 'Fencer' strike aircraft, UK media
reported on 28 December.

The review follows a report in the Daily Express newspaper that Russia is to lease 12 Su-24s to the Argentine Air Force (Fuerza Aérea Argentina - FAA) in return for foodstuffs.

According to the media report, the Su-24s would be delivered to the
FAA ahead of the introduction into service of the first of the UK's two
Queen Elizabeth-class aircraft carriers in 2020 (full-operating
capability for the Queen Elizabeth is currently slated for 2023).

The potential arrival of Su-24s into Argentine service ahead of the
introduction into service of the UK's new aircraft carriers could pose a
"real window of vulnerability", MoD officials reportedly told the Daily Express .

With Argentina arguing sovereignty over the islands that it refers to
as Islas Malvinas, the UK maintains a force of four Eurofighter Typhoon
combat aircraft, Rapier surface-to-air missiles, and about 1,200 troops
permanently stationed on the Falklands. These are supported by visiting
Royal Navy warships, and while the MoD won't comment publically on such
deployments it is understood that nuclear-powered attack submarines are
often sent to the South Atlantic as a further layer of defence for the
islands.

While the MoD declined to address the specific threat of the Su-24s with IHS Jane's
, it did provide a statement which read, "The MoD undertakes regular
assessments of potential military threats to the Falkland Islands to
ensure that we retain an appropriate level of defensive capability to
address any threats. We continue to remain vigilant and committed to the
protection of the Falkland Islanders."

ANALYSIS
For some years now, Argentina has been trying to replace its
antiquated and increasingly unserviceable Dassault Mirage IIIEA, IAI
Dagger, and McDonnell Douglas A-4 Skyhawk fighter fleets with a newer
and more capable type....MUCH MORE

The deal is for Argentina to pay in wheat and beef so Putin gets around the sanctions and President de Kirchner can talk with Elliott Management's Paul Singer.

An unmanned U.S.
aircraft that unleashed Hellfire missiles at a vehicle in Somalia
earlier this week killed a leader of the al Shabaab militant group,
dealing a setback to its ability to carry out anti-government attacks,
the Pentagon said on Wednesday.

Rear Admiral John
Kirby, the Pentagon press secretary, said in a note on Twitter the
department could now "confirm that Tahliil Abdishakur, chief of al
Shabaab's intelligence and security wing, was killed in a U.S. air
strike in Somalia on 29 December."

The Pentagon said in a statement that Abdishakur
was responsible for the group's external operations and "his death will
significantly impact al Shabaab's ability to conduct attacks against the
government of the Federal Republic of Somalia, the Somali people and
U.S. allies and interests."...MORE

Abdishakur was one of the guys behind the recent murders in Kenya and was the plotter of the massacre at Nairobi's Westgate Shopping Mall in 2013.

Haji was one of the heroes of Westgate, a civilian charging into the mall with a ridiculously small handgun against the terrorist's automatic rifles and explosives.

He is credited with helping to save a few dozen people.

As we've noted a couple times, bummer for Abdishakur about the misreading of the 72 virgins thing:

What
new devilry is this? While all of Christendom was recovering from a day
over-indulging on eggnog, figgy pudding and antics worthy of that new
quadcopter drone, China was busy extending its financial tentacles. On
Dec. 26, the currency boffins at the People’s Bank of China announced
that, starting this week, they would begin allowing the trade of
derivatives for companies and investors to bet on the exchange rate
between Russia’s ruble and China’s currency, the yuan, with no U.S.
dollars between them as chaperone.

Conspiracy
theorists weren’t so besotted with Yuletide cheer that they didn’t sit
up and cry foul. This, they bellowed, was a clear instance of China
stepping in to lend a helping hand to its old Cold War comrade and
prevent Western sanctions (and cheap Saudi crude) from breaking Russia’s
back. And just when they seemed so close to convincing Moscow into
pushing its proxies in eastern Ukraine into a peace deal and its
Middle-Eastern puppet Syria to the negotiating table, too.

The
derivatives deal comes on the heels of an October agreement allowing
Russia’s central bank to borrow up to 150 billion yuan ($24.4 billion)
using swap agreements. Some commentators called that deal a lifeline to
Russia as the ruble slid. The Russian currency has lost half of its
value this year, forcing Moscow to take extreme measures to avoid a
balance of payments crisis, including raising the benchmark interest
rate to 17% and ordering Russia’s biggest exporters to cash in their
dollars for rubles.

It may therefore
seem like Beijing is trying to turn Russia’s crisis into its own
opportunity -- to sew a silk purse from Moscow’s ear. But the Chinese
panda may not exactly be scratching the Russian bear’s back here.
Opening up a credit line in yuan to Moscow doesn’t begin to solve
Russia’s immediate problem: oil prices are too low relative to its
imports and overseas debt. Unless Russia can substitute trade with the
West for trade with China, the balance of payments risk remains as long
as the ruble is in free-fall. All the yuan in the world can’t help
Russia if it runs out of dollars....MORE

A largely negative year for agricultural commodities headed
for a largely negative finish, with profit-taking after what has been a better
couple of months for grains seen playing a big role the retreat.

While regulatory data overnight showed hedge funds taking a
more bullish view on ags, in fact, the most upbeat positioning in six months,
that was not as upbeat news as it seemed.

Helen Plant, at the UK's HGCA bureau, highlighted that this
in fact "poses a risk to the current price levels.

"As year-end results are an important measure for investment
firms, speculative traders may sell-off some of these long positions in order
to book profits or re-balance their positions for a new year's trading."

'Powder is not so dry'

While some have been hoping for a repeat in 2015 of the
early 2014 rally, which was spurred by the likes of Ukraine's crisis and
Brazilian drought, hedge fund positioning is not so conducive to gains as a
year ago, when they were running with short positions in many contracts.

"This year their powder is not so dry," one US broker said.

"To see them add to a long position already [in corn] exceeding the equivalent of 1.2bn
bushels will have to come with some serious fundamental reasons."...MUCH MORE

The Winklevoss Bitcoin Trust on Wednesday filed to sell 20.1 million
shares on the Nasdaq exchange. The shares represent units of interest in
the bitcoin exchange-traded fund launched by Tyler and Cameron
Winklevoss, the twins who are best known for their legal dispute with
Mark Zuckerberg over Facebook's
FB, -0.32%
origins. The ETF will be listed
under the symbol COIN, according to the filing. The Winklevoss brothers
also launched a bitcoin index - the Winkdex - in February. Bitcoin is a decentralized virtual currency that has attracted attention for its big price swings.

A company’s success depends on its ability to develop innovative
solutions to problems, and a company’s culture will determine how well
those solutions are implemented. However, innovation and culture are
difficult qualities to define and hard to measure. Some analysts
compensate for this difficulty by using more easily measured
substitutes, such as research and development (R&D) spending, when
valuing a company’s future prospects.

Anne Marie Knott,
professor of strategy at Olin Business School, agrees that R&D
spending alone is not a good indicator of a company’s performance. “The
trouble is,” she wrote in Harvard Business Review, “it’s also hard to
measure strategic alignment and culture, let alone link them to
profitability or market value.” Knott has developed a measure for
R&D productivity that she calls RQ, short for research quotient.

Knott’s RQ equation uses a standard regression analysis to define the relationship between a firm’s spending on inputs and its revenues from output.
Knott notes that “economists have been calculating capital and labor
productivity for years — that is, determining the marginal value of
increasing either one.” She argues that R&D productivity can be
determined using the same method. Both the RQ equation and the Global
Innovation 1000 Study show that the link between research and innovation
is not as simple as more research dollars leading to more innovative
breakthroughs.

It was disgusting to watch various news outlets carry the hacker's water by publishing the disclosed emails. It was hilarious to see their defenses:

“The new reality is that journalists simply do not own the news cycle: Even if Gawker, BuzzFeed News, and Fusion decided to stop covering it, others would take up the mantle,” Anne Helen Petersen writes at BuzzFeed. “The new role of journalists, for better or for worse, isn’t as gatekeepers, but interpreters: If they don’t parse it, others without the experience, credentials, or mindfulness toward protecting personal information certainly will.”

There is a similar "We're different" attitude when a journalist is captured by jihadi's versus some regular bloke.
If the news orgs think it might extend the lifespan of the kidnapped journo to impose a news blackout, then blackout it is. The same consideration is almost never extended to others.*

The bulletin didn’t name the news organization threatened by the
hackers. But Matthew Keys, the former social media editor for Reuters,
has posted what he says are images of the threat that seem to identify CNN as the target of the hacking group’s warning.

Those efforts haven’t achieved much so far, as I wrote when the Twitter spat occurred:

It’s unclear if Sony Pictures expects its efforts at
controlling this information to be successful or if it’s simply looking
to cover its ass should it be sued for failing to protect this sensitive
information. It’s putting on a good show either way, but that’s not
enough.
Sony Pictures is fighting the many-headed beast known as the
Internet, and it has yet to separate a single skull from all the tubes
and tissues connecting it to the world at large.

Now it seems the threats are coming from the other end of the hack, leaving the news organizations uncovering details about efforts to curb Internet freedoms or just how concerned Sony employees should be about the hack between the opposing sides.

The good news, if you can call it that, is that there’s yet to be
any indication of an attack against CNN or any other news organization
by the hacking group. The bad news is that if someone does decide to
attack a publisher the results could be disastrous, as executive
director of the Freedom of the Press Foundation Trevor Timm told the Intercept before its report:

“While it’s hard to tell how legitimate the threat is, if
a news organization is attacked in the same manner Sony was, it could
put countless sensitive sources in danger of being exposed—or worse.
[…] This FBI bulletin is just the latest example that digital security
is now a critical press freedom issue, and why news organizations need
to make ubiquitous encryption a high priority.”...

Over the holidays, while
watching two children create Lego worlds at the foot of a glowing
Christmas tree, it suddenly hit us that in only five years, it will
be the twenties again. Feeling old, my cousin and I took swigs of
white wine and shoved our faces with ham. So, instead of reflecting
on 2014, let’s take a look at 1914:

— On June 28th, Archduke Franz Ferdinand and
his wife, Sophie, were shot and killed, triggering a cascade of
violence. The “Great War” was disease-ridden, fought in ungodly
trenches, saw the deaths and injuries of millions and set the stage
for World War II.

— In August, president Woodrow Wilson’s wife,
Ellen Axson Wilson, died of Bright’s disease. In reviewing 1914, I
found that many stories conclude with Chekhovian despair over
losses like Wilson’s. Death and disease permeated culture then in a
way far beyond what most of us can comprehend today. The average
death rate was 13.6 per 1,000, a record low at the time, but
much worse than today’s 8.07,
while life expectancy was 52 years for men and 56.8 years for
women; Tom Cruise and Geena Davis would likely be dead, not still
acting.
— On Lexington Avenue near 103rd St.,
a bomb intended for John D. Rockefeller exploded in an anarchist’s
apartment. The incident became Known as the “Lexington Avenue
bombing;” four people died and dozens were injured. It was one of
many politically charged acts of violence of the time, among them
bombings and assassination attempts by anarchist
Luigi Galleani and his followers. Meanwhile, at Frank Lloyd
Wright’s home in Wisconsin,
an angered servant killed seven people, including Wright’s
mistress and her two children, and torched the place. The “Wright-mare”
was a national news sensation at the time, and became the stuff
of architecture student lore....MORE

Earlier today, Saudi Arabia's stock market fell sharply with the
Tadawul All Share Index plunging following a Saudi state TV report that
King Abdullah had been admitted to hospital for tests. As shown in the
chart report, the index tumbled as much as 6% in the minutes after the
Saudi Press Agency report which quoted a brief royal court statement.

But while the ill king of the King, aged 90, is hardly news to the
discounting stock market, a few more nuanced interpertation of not just
what happens if and when the King passes away but what Saudi succession
looks like, is much more relevant for oil - especially now that Saudi
Arabia has unilaterally decided to tear apart OPEC in its push to put US
shale producers out of business.

As Emad Mostaque of EC Strat, accurately observes:

Oil prices are now at levels that cause real concern on the streets of Saudi Arabia, with the prospect of succession the icing on top that has caused retail investors to take the market down another leg.

This policy may not make it through a succession period, where public
support and good will is essential, particularly as it has nearly been
20 years since the last change.

The new regent could decide to keep existing policy, change
it completely or anything he decides. Similarly he has free reign to
realign Saudi Arabia’s foreign policy as he wishes, which is a
discussion for another time and place, but could have significant
regional impacts.

Summary: King could change, new King can do (almost) anything he wants, including changing oil policy

The Saudi market collapsed 6.5% today on Saudi Press Agency reports
that King Abdullah was admitted to hospital for medical tests.

Ordinarily this shouldn’t be a big deal and is nothing new, with King
Abdullah having had back surgery in 2012 and spent an extended period
in convalescence in Morocco in the last year. However, having led the
Kingdom for almost 19 years (as of Friday) and at the official age of 90
years old, this report raises the question of eventual succession once
more.

Unlike Oman, where Sultan Qaboos has been unwell in Germany and his
heir unknown, we know that King Abdullah’s heir will be Prince Salman
bin Abdulaziz al Saud (79), who succeeded Prince Nayef as Crown Prince
in 2012 having been Minister of Defence and Governor of Riyadh
previously. Next in line is Prince Muqrin (69), the youngest of that
generation of Princes, meaning a likely generational jump thereafter.

While any process of succession should be smooth with the next two
leaders defined (and some strong probabilities as to who follows after),
there is significant uncertainty as to what path Saudi Arabia may take
going forward....MORE

The past year saw progress in developing hardware and software capable of human feats of intelligence.

The holy grail of artificial intelligence—creating
software that comes close to mimicking human intelligence—remains far
off. But 2014 saw major strides in machine learning software that can
gain abilities from experience. Companies in sectors from biotech to
computing turned to these new techniques to solve tough problems or
develop new products.

The most striking research results in AI came from the field of deep
learning, which involves using crude simulated neurons to process data.

The search company Baidu, nicknamed “China’s Google,” also spent big on artificial intelligence. It set up a lab in Silicon Valley
to expand its existing research into deep learning, and to compete with
Google and others for talent. Stanford AI researcher and onetime Google
collaborator Andrew Ng was hired to lead that effort. In our feature-length profile,
he explained how artificial intelligence could turn people who have
never been on the Web into users of Baidu’s Web search and other
services.

Machine learning was also a source of new products this year from
computing giants, small startups, and companies outside the computer
industry.

Below is a list of the
top-earning equities for securities lenders in 2014. DataLend scanned
its universe of more than 42,000 securities on loan to find those
securities with the most expensive financing positions in the U.S.,
Canada, Europe and Asia. Financing costs are determined by taking the
total on-loan value of a security and multiplying it by the
volume-weighted average fees to borrow that security, then converting
the product of those numbers to a dollar value.

We determine the financing costs of all securities per day over the
entire year, then add those up and finally select the top 25 that had
the highest average financing cost for all of 2014 by region. We then
sort the most expensive securities to finance in the securities lending
market in descending order.

* Average utilization by quantity across 2014. A high average
utilization suggests the security had a high proportion of lendable
stock out on loan for an extensive period of time in 2014.

It might not feel like it, but we are safer, richer and healthier than at any
time on record

Newspapers can seem like a rude intrusion into the Christmas holidays. We
celebrate peace, goodwill and family – and then along come the headlines,
telling us what’s going wrong in the world. Simon and Garfunkel made this
point in 7 O’Clock News/Silent Night, a song juxtaposing a carol with a
newsreader bringing bad tidings. But this is the nature of news. Whether
it’s pub gossip or television bulletins, we’re more interested in what’s
going wrong than with what’s going right.

Judging the world through headlines is like judging a city by spending a night
in A&E – you only see the worst problems. This may have felt like the year
of Ebola and Isil but in fact, objectively, 2014 has probably been the best
year in history. Take war, for example – our lives now are more peaceful
than at any time known to the human species. Archaeologists believe that 15
per cent of early mankind met a violent death, a ratio not even matched by
the last two world wars. Since they ended, wars have become rarer and less
deadly. More British soldiers died on the first day of the Battle of the
Somme than in every post-1945 conflict put together.

The Isil barbarity in the Middle East is so shocking, perhaps, because it
comes against a backdrop of unprecedented world peace.

We have recently been celebrating a quarter-century since the collapse of the
Berlin Wall, which kicked off a period of global calm. The Canadian academic
Steven Pinker has called this era the “New Peace”, noting that conflicts of
all kinds – genocide, autocracy and even terrorism – went on to decline
sharply the world over. Pinker came up with the phrase four years ago, but
only now can we see the full extent of its dividends.

Tuesday, December 30, 2014

This is a new generation of soft metamaterials that are easier to shape.
In their experiment, the researchers got ultrasonic oscillations to
move backwards while the energy carried by the wave moved forwards.
Their work opens up new prospects, especially for high-resolution
imaging (ultrasonography).

The new type of metamaterial, in the fluid phase, is formed of porous
silicone microbeads embedded in a water-based gel. This metafluid is the
first three-dimensional metamaterial to work at ultrasonic frequencies.
In addition, due to its fluid nature, it can be made using
physico-chemical processes and microfluidics technologies, which are
much easier to implement than micromechanical methods.

One of the properties of porous media is that sound travels through them
at very low speed (a few tens of meters per second) compared to water
(1500 meters per second). Due to this sharp contrast, the whole
suspension has the properties of a metamaterial provided the bead
concentration is sufficient: when the researchers studied the
propagation of ultrasonic waves through this medium, they directly
measured a negative refractive index. Within such a metafluid, the
energy carried by the wave travels from the emitter to the receiver, as
expected, whereas the oscillations appear to move backwards in the
opposite direction, rather like a dancer doing the 'moonwalk'....MORE

Instacart, the scrappy grocery delivery service challenging
AmazonFresh, revealed on Tuesday that it has raised up to $220 million, a
boost for the quick-growing startup that has so far proven the throngs
of grocery delivery naysayers very wrong.

The big investment, led by Kleiner Perkins, values San
Francisco-based Instacart at an estimated $2 billion — the same market
cap as San Jose data storage firm Nutanix, which is expected to go
public next year, and just trailing San Francisco-based Box’s $2.4
billion valuation.

About six months ago, Instacart raised $44 million from Andreessen
Horowitz and Sam Altman, among others, at a reported $400 million
valuation. The latest funding round reveals just how quickly the startup
has grown: It has added new grocery retailers to its app, and has a new
partnership with Whole Foods in which Instacart workers are stationed
inside the grocery store to shop for and bag food, preparing deliveries
for the Instacart driver and expediting the entire process.

The oil price collapse that started in October 2014 has yet to run its course but this much is already clear: it will be seen as a historic event.

The market has never seen anything like this before. The rout in
2008-09 was arguably more dramatic, but led by factors outside of the
oil market. It was a result of a financial crisis and a sharp
contraction in economic growth, which sapped demand for oil.

But
this time it is different and not just because of the relative scale of
price moves. The 2014 sell-off originated in the oil market: first from
rising inventories as demand weakened and unplanned outages eased; and
then when Opec — effectively Saudi Arabia — decided not to intervene and
let market forces rule.

One of the reasons Saudi Arabia relinquished its role as a swing
producer is precisely because of these differences — in 2008, external
factors caused the drop in demand, which Opec then took action to
correct. This time around, the problems came from within.

Production cuts by Saudi Arabia to shore up prices would therefore
only result in the kingdom losing market share given the inability and
unwillingness (for various reasons such as lack of revenues or high
social spending) of other Opec and non-Opec countries to reduce output.

Inevitably, the decision by Opec to “roll over” the existing 30m barrel a day production quota at its November meeting
revived old debates about its relevance and importance in the market,
especially in light of the growth in US tight oil, or shale output.

But these exchanges usually ignore one simple point. The decision to
not intervene is a brave one given that it signals a departure from what
economic theory would suggest an oil producer should focus on —
revenues.

Saudi Arabia is giving up billions of dollars of
revenues in the short term and running a $39bn budget deficit in 2015,
in an effort to retain market share. It is betting a period of lower prices (which it can withstand given plentiful foreign exchange reserves) will shake out some high cost producers....MORE

This method for analyzing progress –
comparing repo reform to bank reform – has merit because the underlying
problem was the same, both for banks in the decades leading up to the
1930s and for the repurchase market in 2007 to 2009: financial panic and
runs on banks.

– In the early 20th century, lenders
(depositors) lost faith in the solvency of their borrowers (commercial
banks) and suddenly demanded their money back. But the banks didn’t have
the money any more. They had re-used it to make loans and investments.
This created a panic that threatened to bankrupt the commercial banks
and the economy.

– In the early 21st century, lenders (on
the repurchase market) lost faith in the solvency of their borrowers
(investment banks) and suddenly demanded their money back. But the
banks didn’t have the money any more. They had re-used it to make loans
and investments. This created a panic that threatened to bankrupt the
investment banks and the economy.As Federal Reserve Governor Daniel Tarullo, the governor with the most responsibility for post-crisis reforms, explained in a November 20 speech about progress that’s being made toward preventing runs:

The financial turbulence of
2008 was largely defined by the dangers of runs–realized, incipient, and
feared. Facing deep uncertainty about the condition of counterparties
and the value of assets serving as collateral, many funding markets
ground to a halt, as investors refused to offer new short-term lending
or even to roll over existing repos and similar extensions of credit. In
the first instance, at least, this was a liquidity crisis. Its
fast-moving dynamic was very different from that of the savings and loan
crisis or the Latin American debt crisis of the 1980s. The phenomenon
of runs instead recalled a more distant banking crisis–that of the
1930s.

The structure of the repurchase market makes it particularly vulnerable to runs. Here’s how that works.

On the repurchase market, lenders make
short-term loans to borrowers. Because these repo loans are only for
overnight or for just a few days, the lenders can quickly withdraw in
times of trouble, by refusing to renew the old loan or to make a new
one. The lender just suddenly demands its money back.

We’re talking big money here. More than $3 trillion is outstanding on the U.S. repurchase market every day, compared to less than $300 billion
that typically trades daily on the U.S. stock markets. The $3 trillion
flows throughout the financial markets, making its way to investors,
corporations, businesses, governments, pension plans, insurance
companies, and speculators.

It’s been a relatively quiet holiday season for US Equities. But some
interesting technical events are taking place that I’d like to
highlight and discuss. Some bullish, some bearish.
Here are 6 things to watch over the coming days.

Bullish1. First and foremost, the Russell 2000 (RUT), S&P 500 (SPX – Quote), and NASDAQ Composite
(COMPQ) have broken out to new highs. The Russell 2000 is probably the
most interesting, as it has struggled in a sideways range all year… so a
breakout to new highs is noteworthy. All of the breakouts on the US
Equities indexes (including the Dow Jones Industrial Average) are marginal, on low volume, and have yet to receive confirmation.2. We are also still in the “Santa Clause” rally phase (until Jan 5).3. All 4 Indexes mentioned above have rising 50 day
moving averages (and these should serve as a barometer of market
support into January).
That’s all fine and dandy, but now there are a few near-term concerns that investors/traders should be aware of…

A
classic debate! Good or Evil? Chocolate or Strawberry? Star Trek or
Star Wars (excluding the Death Star)? But unlike those timeless
questions this one really does seem to have a compelling answer. And its
not what the majority seem to think.

A few necessary caveats (take heed ye trolls):

1) Although it (should) hardly need saying—these are both completely fictional universes whose
technology and scientific foundations are, at best, bolted on after the
fact as part of the setting and/or necessary plot devices. This entire
debate is like meaningfully debating the combat prowess of Unicorns vs.
Dragons. But of course, we're going to do it anyway.

2) The goal is to assume the most favorable interpretations for each technology as demonstrated most coherently by
each canon. Obvious mistakes (i.e using parsecs as a measure of time...
Hello Han) or figures completely inconsistent with the results offered
(Star Destroyers with power generation of 7.75 x 1024 W... only 100
times less than the sun!) will be ignored.

For those
crying foul a Star Destroyer that needs that much power (to create the
abilities displayed) would represent the most fantastic inefficiency
ever conceived. Likewise, some of the energy readings suggested for Star
Wars laser weapons would instantaneously vaporize any unshielded
craft—not to mention the atmosphere in between them—in rather
spectacular fashion. Nothing in the physical behavior of these weapons
supports these values (for instance that Slave 1 has 64,000 GW lasers or
190 Megaton missiles. Never, in any battle, was a blast of that nature
or kind observed).

Bottom line: All weapons and systems should be evaluated on how they actually
perform as depicted in the canon as opposed to often innumerate and
psuedo-scientific gibberish offered in support of them. That being said,
where a vaguely credible explanation has been offered, it will
generally be taken (i.e. lasers are lasers).

3)
The treatment of technology dramatically complicates the task of
comparison. Star Trek consciously attempted to provide at least some
basis (however weak or novel) for the science behind their technology.
Star Trek represents a technological utopia and was promoting the idea
of a better future via modern technology. This is also evident in that
the technology of Star Trek advances dramatically over the course of the
various seasons (including referencing far future Star Trek timelines
with mastery over time itself). Star Wars, on the other hand, makes no
such claims and depicts an utterly static technological milieu in which
no appreciable advances have been made (save perhaps the Death Star
itself) in tens of thousands of years. In addition, Star Wars often
offers little—if any—scientific explanation for its tech
(Hyperspace—it's fast!). I am assuming the general tech capabilities of
Trek as found as late as Voyager.

Now, those
out of the way lets get to the point. This is not a close fight.
Despite the desires of the many fans, the Star Trek universe is rife
with economic, tactical, social, and technological superiority. Claims
of Star Wars victories all seem to echo the Stalin-esque view that
"Quantity has a Quality all its own." But this is profoundly misguided.
Let's break down why.

Economic Factors

Star Wars
population is very difficult to assess. Some estimates suggest a
1,000,000 world Empire. But the Galactic Senate depicts a vastly smaller
political entity. According to Star Wars Wiki,
the Empire was divided into units of 50 systems each with a senator.
However, the Senate only has 2,000 members. Which means a galactic
polity of 100,000 active members. This is still vastly greater than the
Federation with something like 150 members and 1-5 thousand worlds.

However,
the nature of this population is most important. The Empire, while
having far larger population, appears weakly integrated. Entire
populations (quite commonly) are depicted as isolated and poor. Basic
farming or harvesting seems commonplace. Much of the population appears
uneducated and even tribal. While the core worlds are densely populated,
they are apparently completely dependent on agricultural and other
products from the empire. This means Star Wars retains a traditional
resource economy model....MORE

U.S. oil drillers idled the most rigs since
2012 as prices slid below $55 a barrel to the lowest level in
five years and a fight for market share with OPEC intensified.

Rigs targeting oil declined by 37 to 1,499 in the week
ended Dec. 26, the lowest since April, Baker Hughes Inc. (BHI) said on
its website yesterday, extending the three-week decline to 76.
Those drilling for natural gas increased by two to 340, the
Houston-based field services company said.

U.S. oil output has surged to the highest in three decades
even as the Organization of Petroleum Exporting Countries
resists cutting production to defend market share, exacerbating
an oversupply that Qatar estimates at 2 million barrels a day.
Crude has slumped by almost 50 percent this year, prompting U.S.
producers including Continental Resources Inc. and
ConocoPhillips to plan spending cuts.

“We should see the rig count going down at least through
the end of the first quarter as a reaction to the low oil
prices,” said James Williams, an economist at WTRG Economics,
an energy-research firm in London, Arkansas, before the report.
“By midyear, we should see measurable impacts on production.”

The total rig count, which includes one miscellaneous rig,
dropped 35 to 1,840, an eight-month low.

Brent crude and U.S. West Texas Intermediate crude futures
are both trading near five-year lows. WTI was at $53.88 a barrel
at 9:43 a.m. on the New York Mercantile Exchange today, while
Brent was at $57.87.

Falling Margins
“The rig count is falling because oil prices are
falling,” Carl Larry, a Houston-based director of oil and gas
at Frost & Sullivan, said by phone. “The margins just aren’t
there.”

While the U.S. rig count has dropped, domestic production
continues to surge, with the yield from new wells in shale
formations including North Dakota’s Bakken and Texas’s Eagle
Ford projected to reach records next month, Energy Information
Administration data show....MORE

Venture capital exploded in 2014, with bigger deals and more
eye-popping valuations than anytime since the dot-com boom. So what
happens next, and which opportunities will define 2015?

We asked several venture capital investors to reflect on the past
year and give us their outlook for the next 12 months. Next in our
series is Mark Suster, a partner at Upfront Ventures. Mr. Suster talks
about the new capital in venture, the creep of valuations and the
venture cycle versus the economic cycle.

What surprised you the most about 2014?
A couple of things surprised me in 2014. The first was the extent to
which new entrants–corporate investors, hedge funds & mutual
funds–piled into the late-stage VC market and drove up valuations and
created new competition for deals. The second was the increasing
sure-footedness and confidence of the great Asian Internet companies as
they globalize, including Baidu, TenCent, Alibaba, Rakuten, Naver and
others.

What do you think will be the biggest challenge for your part of the industry in 2015?
The biggest challenges for the venture capital industry will be the
continued creep in valuations across all stages of the industry. In
early-stage capital the influx of angels, seed funds and crowdsourcing
has led to an 8% to 12% CAGR over the past four years for early-stage
deals, while late-stage deals have seen a 24% CAGR due to increased
competition as outlined above. Great companies will be built in this
period, but times of over-capitalization in our industry don’t bode as
well for long-term capital returns. The other big challenge is that as
more tech companies become embedded in daily life they will abut
industries that are regulated and will fight back. We’ve seen this
already with Uber, Lyft and Airbnb. Expect more of this ahead....MORE

If there’s one overarching idea for global investing in 2015, it’s that overarching strategies aren’t a good idea.

In 2014, global markets started breaking a multiyear pattern in which
different asset classes and geographic markets mostly moved in unison.
Correlations are set to break down further in 2015.

Accelerating this breakdown is fact that central banks are going
their separate ways – the Federal Reserve is preparing for a rate
increase, the European Central Bank for more monetary easing – while
energy producers and consumers are experiencing starkly different
effects from falling oil prices.

The upshot: Global investors must do their homework. across-the-board
bets on risk-sensitive assets such as equities or junk bonds won’t do;
they will need to be more selective. The fundamental circumstances for
each country, company or commodity must be assessed and differentiated.
Investment positions will need frequent adjusting. Simplicity is ceding
ground to the realities of a complex world.

“In a year when economic fortunes and central bank policies will
diverge, it will be important to be positioned in a way that recognizes
the challenges and identifies where the potential opportunities lie,”
says Rick Lacaille, chief investment officer for State Street Global
Advisors, which has $2.4 trillion under management. State Street is
hoping that 2015 will better suit its bottom-up value-investing model
rather than the top-down macro approaches that were favored during the
highly correlated market movements of recent years.

Correlations became especially strong after the 2008-2009 financial
crisis. During “risk on” periods, when central-bank monetary stimulus
measures boosted confidence in the global financial system’s recovery,
investors poured into all manner of “risk sensitive” assets, raising
prices for emerging-market currencies, high-yield bonds, industrial
commodities and equities indiscriminately. Then, during “risk off”
panics such as those of the eurozone crisis, those flows would abruptly
reverse and head to safe-havens denominated in dollars or yen.

However, herd investing has roots that precede the crisis. Its habits could be hard to break.

As Financial Times columnist John Authers noted in his 2010 book,
“The Fearful Rise of Markets,” blame for the “global bubbles” and
“synchronized meltdowns” of recent years lies with both official
policymakers and with the professional investment industry. Former Fed
Chairman Alan Greenspan gave rise to the “Greenspan Put,” which after it morphed into the “Bernanke Put” during Ben Bernanke’s
chairmanship continued to signify the expectation that the Fed would
always minimize investors’ losses in falling markets by flooding them
with monetary liquidity. Meanwhile, government bailouts led Wall Street
investment banks to believe they were too big to fail. At the same time,
monthly assessments of portfolio performances led competing
professional money managers to stick closely to their benchmarks, which
meant they invested as a group. The same industry devised
classifications that put disparate assets and markets under broad
umbrellas, each tailored-made for the herd: “junk bonds,” for one, and,
most significantly, “emerging markets.” All of this meant that nuanced
insights were less valuable.

Meanwhile, economists were describing a world that seemed to be
converging into homogeneity. The idea that globalization, information
technology and improved policies were driving developing nations to
catch up to the advanced economies became an article of faith that in
turn encouraged parallel investment strategies. Its baseline assumption –
that America was slowing and emerging markets were the future —
couldn’t anticipate the late-2014 scenario where the U.S. is again the
world’s engine of growth while developing nations such as Russia
confront crises....MORE

The theory of eternal inflation casts our universe as one of countless bubbles in an eternally frothing sea.

Testing the multiverse hypothesis requires measuring whether our
universe is statistically typical among the infinite variety of
universes. But infinity does a number on statistics.

If modern physics is to be believed, we shouldn’t be here. The meager
dose of energy infusing empty space, which at higher levels would rip
the cosmos apart, is a trillion trillion trillion trillion trillion
trillion trillion trillion trillion trillion times tinier than theory
predicts. And the minuscule mass of the Higgs boson, whose relative
smallness allows big structures such as galaxies and humans to form,
falls roughly 100 quadrillion times short of expectations. Dialing up
either of these constants even a little would render the universe
unlivable.

To account for our incredible luck, leading cosmologists like Alan Guth and Stephen Hawking
envision our universe as one of countless bubbles in an eternally
frothing sea. This infinite “multiverse” would contain universes with
constants tuned to any and all possible values, including some outliers,
like ours, that have just the right properties to support life. In this
scenario, our good luck is inevitable: A peculiar, life-friendly bubble
is all we could expect to observe.

Many physicists loathe the multiverse hypothesis, deeming it a
cop-out of infinite proportions. But as attempts to paint our universe
as an inevitable, self-contained structure falter, the multiverse camp
is growing.
The problem remains how to test the hypothesis. Proponents of the
multiverse idea must show that, among the rare universes that support
life, ours is statistically typical. The exact dose of vacuum energy,
the precise mass of our underweight Higgs boson, and other anomalies
must have high odds within the subset of habitable universes. If the
properties of this universe still seem atypical even in the habitable
subset, then the multiverse explanation fails.

But infinity sabotages statistical analysis. In an eternally
inflating multiverse, where any bubble that can form does so infinitely
many times, how do you measure “typical”?

Guth, a professor of physics at the Massachusetts Institute of
Technology, resorts to freaks of nature to pose this “measure problem.”
“In a single universe, cows born with two heads are rarer than cows born
with one head,” he said. But in an infinitely branching multiverse,
“there are an infinite number of one-headed cows and an infinite number
of two-headed cows. What happens to the ratio?”

For years, the inability to calculate ratios of infinite quantities
has prevented the multiverse hypothesis from making testable predictions
about the properties of this universe. For the hypothesis to mature
into a full-fledged theory of physics, the two-headed-cow question
demands an answer.

Eternal Inflation
As a junior researcher trying to explain the smoothness and flatness of the universe, Guth proposed
in 1980 that a split second of exponential growth may have occurred at
the start of the Big Bang. This would have ironed out any spatial
variations as if they were wrinkles on the surface of an inflating
balloon. The inflation hypothesis, though it is still being tested, gels with all available astrophysical data and is widely accepted by physicists.

In the years that followed, Guth and several other cosmologists reasoned
that inflation would almost inevitably beget an infinite number of
universes. “Once inflation starts, it never stops completely,” Guth
explained. In a region where it does stop — through a kind of decay that
settles it into a stable state — space and time gently swell into a
universe like ours. Everywhere else, space-time continues to expand
exponentially, bubbling forever....MORE

I’m not one of those who thinks Cuba is the next Singapore or even the next Puerto Rico. Why not?

I’m willing to assume that the end of the American embargo will mean some kind of economic liberalization over the next ten years. But how much good will that bring?

We could start by looking for relevant comparisons. We could ask how well have non-British-ruled, non-Dutch-ruled, non-American-ruled Spanish-speaking Caribbean islands done? There is a fairly clear example of such a country with some ethnic, cultural, historic, and linguistic similarities to Cuba, namely the Dominican Republic. For non-PPP-adjusted gdp per capita, the D.R. clocks in at about $5800 per year. And that is about where I think Cuba will end up, after a good bit of turmoil.

Now various official sources put Cuban per capita gdp (again, non-PPP-adjusted) at about that same level. That is highly misleading, and yes I have been to both countries. (Other countries at that level don’t have so many hungry people or so many women selling their bodies to tourists.) In any case I expect Cuban reforms, along with a good bit of additional deindustrialization from U.S. competition, to bring a short-run gdp dip, with an eventual climb into a D.R.-like economy, albeit with big bumps along the way.

Here are a few additional points:

1. The Caribbean in general has done very poorly since the economic crisis of 2008. Most of it does not show signs of bouncing back.
...MUCH MORE

Well duh.
I didn't understand all the econ/financial/investment rhapsodizing upon the December 17th announcements.If there was any econ/business value there don't you think Canada or Germany or China might have pursued it?

From the Federal Reserve Bank of New York's Liberty Street Economics blog:

Global asset market developments during the summer of 2013 have been
attributed to changes in the outlook for U.S. monetary policy, starting
with former Chairman Bernanke’s May 22 comments concerning future curtailing of the Federal Reserve’s asset purchase programs. A previous post
found that the signal of a possible change in U.S. monetary policy
coincided with an increase in global risk aversion which put downward
pressure on global asset prices. This post revisits this episode by
measuring the impact of changes in Fed’s expected policy rate path and
in the economic outlook on the U.S. dollar and emerging market equity
prices. The analysis suggests that changes in the U.S. and foreign
outlooks had a meaningful role in explaining global asset price
movements during the so-called taper tantrum.

The earlier post Risk Aversion, Global Asset Prices, and Fed Tightening Signals
used a statistical model estimated with data for U.S., euro area,
Japanese and emerging market equity markets, the U.S. and euro area bond
markets, commodities, and the dollar, where the current changes in the
values of these assets are regressed on past changes in the values of
all the assets, with the changes not explained being “residuals.” Then,
shocks to risk aversion were estimated by looking at shifts in the
correlations across the model’s residuals when there are large changes
in overall implied volatility. That analysis suggested that substantial
increases in risk aversion coincided with Bernanke’s testimony,
resulting in a significant downward pressure on global asset prices in
the two months after it.

However, measuring changes to global
risk aversion is a difficult exercise and the previous effort did not
link it explicitly to either changes in policy expectations or to
changes in the economic outlook. Here, the same statistical model and
methodology are used to look at shifts in the corresponding residuals’
correlations on three sets of days:

Days when there are major U.S. data releases, where the news is
measured by comparing for each release the Bloomberg consensus
expectation with the realization. A weighted average is constructed,
using the covariance with the average model residual on a day as
weights, of these data-release surprises across nineteen U.S. releases,
ranging from GDP to price, labor market, and housing indicators.

Days when there are major foreign data releases with a similar
weighted average constructed for the advanced foreign economies as well
as some emerging market economies.

Using an approach similar to that used in Mertens and Ravn (2013),
it is possible to quantify the shocks due to revisions in market
participants’ U.S. and foreign economic outlooks as well as due to
revisions in expected future Fed policy and use the model to estimate
the impact of these shocks on asset prices....MORE